Purchase Price Allocation on $110MM Acquisition with ADS Election

13 Story Mixed-Use Propertywith a Cost Basis of$110 Million Excluding Land

Meridian was contracted to conduct a Purchase Price Allocation and Fixed Asset Study on the acquisition and phased improvements of a multi-tenant office building comprising first floor retail and a three story parking garage. The objective of the study was to create a foundation to correctly value and segment the capitalized costs, enabling the taxpayer to optimize the value of future retirements.

The CPA directed the assets for classification according to the Alternative Depreciation System (ADS) due to the new interest expense limitations outlined in the Tax Cuts and Jobs Act (TCJA). The office building required $8.5 million of improvements to include the initial building refresh and, in 2019, a 60% tenant contribution for the build-out of a restaurant to replace the bank previously occupying a portion of the first floor.

Possible long-term plans include developing the complex into a work/live/play atmosphere by introducing a large co-working space tenant, personal training gym, and other convenience-based tenants. Future phases may also consist of four floors of multi-family atop the adjoining parking garage. Over the further two to seven years, a complete interior and exterior overhaul is anticipated to occur in phases.

Meridian’s engineering methodology re-estimated the project using a valuation method accepted by the IRS and emphasized details for short and long life assets for ADS. Our methodology is consistent with construction estimating techniques that use current disposition/maintenance & repair rules, Unit of Property (UOP) concept, and the recent Capitalization of Tangible Property Regulations. The detail and documentation trail are established to facilitate the retirement of assets associated with the original retail space, and the additional structural building components that must change to accommodate the new restaurant build-out and building refresh

The study was organized by tenant, suite, asset class and building use to enable internal accounting to easily optimize the value of future retirements associated with renovations and demolition driven by tenant changes, expansion, and building upgrades.